Ana Palacio, a former Spanish foreign minister and former Senior Vice President of the World Bank, is a member of the Spanish Council of State, a visiting lecturer at Georgetown University, and a member of the World Economic Forum's Global Agenda Council on the United States. read more

Europe’s Narrative Struggle

MADRID – The start of any year invariably prompts stocktaking, and 2012 certainly offers much to consider: the dramatic events in the Middle East, leadership change in China, and the brinkmanship of America’s budget debate. All were high in importance, if not always in popular interest. That seems especially true of the painful and excruciatingly prolonged – indeed, still ongoing – process of saving the euro.

The euro’s survival in 2012 – if only by the skin of its teeth – confounded skeptics who forecast Greece’s exit from the eurozone and the single currency’s collapse by the end of the summer. Indeed, the European Union’s future still seems acutely uncertain, owing mainly to a mismatch between rhetoric and reality.

In the realm of reality, the latest of many “grand” summits in Brussels has left a yawning gap between Europe and a fiscal union, as heads of state stripped much of the substance from the blueprint proposed by Herman Van Rompuy, the president of the European Council, and developed by the European Commission.

Nonetheless, concrete and positive steps toward institutional consolidation – though far from achieving the ambitions of some – have been taken. The creation of the European Stability Mechanism, the European Central Bank's new supervisory role, and the ECB’s purchases of sovereign bonds over the course of the last year have provided much-needed relief to Europe’s beleaguered peripheral economies. Moreover, Europe is one step closer to a full-fledged banking union.

The main impediment to further progress is that two competing narratives have emerged to explain Europe’s economic travails and lay out a path forward. One centers on the eurozone's structural flaws and aims at strengthening the institutional framework, whereas the other highlights faulty domestic policies and focuses on austerity. Alarmingly, the resulting political debate has degenerated into a shrill cacophony of moral righteousness, finger-pointing, scapegoating, and stereotyping.

In fact, though often portrayed as irreconcilable opposites, the two approaches to resolving the euro’s problems are complementary – indeed, essential – components of any realistic approach to ensuring the eurozone’s future. Likewise, neither narrative alone can provide a vision for the EU; the gap between them can be filled only by trust.

Greece, Italy, Spain, Portugal, and even France need to control their deficits and streamline debt. But no degree of austerity on its own will enable Europe’s southern economies to get back on their feet.

Consider Greece. Anticipating desertion by Europe and convinced that painful budget cuts and repayment will benefit only its creditors, the country has ring-fenced itself, and has been sapped of all motivation to undertake the reforms dictated by Brussels. Meanwhile, Germans regard economic transfers to the South as a moral-hazard problem that no European political agreement could resolve. Seeing only one side of the equation, public opinion has become polarized between northern and southern Europe, perpetuating a vicious cycle of mistrust.

It would be equally wrong to imagine that institutional changes alone will fix Europe’s problems. While an integrated financial framework for Europe is taking shape, daunting decisions regarding the design of a European resolution mechanism need to be worked out. A banking union will undoubtedly entail significant encroachments on sovereignty (for example, decisions to close banks, distribute losses, or cut workforces at the national level), which, unless accompanied by progress toward a political union, will generate a crisis of legitimacy.

Thus, addressing Europe’s serious economic issues requires wading into the deep waters of the political imagination. So far, however, policies aimed at shoring up the euro have been narrowly technical, in an effort to isolate Europe’s financial travails from popular discontent over its direction. That debate has been left to fester, serving as a dangerously dysfunctional pressure valve for turbulent and frustrated citizens across Europe.

Confronted with the reality of disgruntled electorates, pundits are quick to bemoan the “democratic deficit” of the Union’s institutions. Lately, they have been pleading for the direct election of the European Commission president, the transformation of the Council of Ministers into a form of second legislative chamber, or for the establishment of Europe-wide political parties to contest elections to the European Parliament.

None of these initiatives would work, however, owing to a simple, inconvenient truth: to this day, Europeans view each other in “us versus them” terms. Europe’s common institutions – both old and newly created – can survive in the long run only if a common European identity materializes to underpin them.

The emergence of such an identity depends on politicians’ ability to communicate to their fellow citizens the Union’s real advantages and the bleak prospects of nation-states that try to go it alone. In a “post-European world,” Europe is globally relevant only when united. The single market is the paramount example at one extreme, with defense – plagued by duplication and lacunae between EU countries – at the other.

Although politicians and voters are equally unwilling to admit it, the EU has reached a fork in the road. One route leads to further integration, while the other implies a return to national sovereignty; navigating the former will require great effort, whereas the latter is a relatively straight downward path. Ultimately, the EU’s future – if it has any future at all – depends on constructing a coherent narrative that articulates that choice explicitly.

Comments

I must discord with the implications suggested by the phrase "no degree of austerity on its own will enable Europe’s southern economies to get back on their feet". It seems not only to suggest a choice of austerity as economic policy, but also as the only choice. For Italy, the structural reforms and the deficit and debt control, which have been considered harsh and growth-chocking, were not introduced by choice but necessity. Also “austerity” measures were never intended to be isolated from the simultaneous and subsequent growth-inducing initiatives.

" Europeans view each other in “us versus them” terms. Europe’s common institutions – both old and newly created – can survive in the long run only if a common European identity materializes to underpin them." Not only Europeans are suffering from this notion of "sovereignty" but every other country in the world market is also prone to these feudal notions. History driven by natural human development has mingled all of our fates and because of this we must begin our next chapters here on earth as united peoples in general, in pursuit of the common goals that will allow all of us to participate in global solutions to our common societal and financial crises.We are experiencing "growing pains" as a species and will find that the solutions reach far beyond currencies and deficits.

The last two paragraphs are extremely important and hopefully will signal the future thinking of the leaders in Europe:"...The emergence of such an identity depends on politicians’ ability to communicate to their fellow citizens the Union’s real advantages and the bleak prospects of nation-states that try to go it alone. In a “post-European world,” Europe is globally relevant only when united. The single market is the paramount example at one extreme, with defense – plagued by duplication and lacunae between EU countries – at the other.Although politicians and voters are equally unwilling to admit it, the EU has reached a fork in the road. One route leads to further integration, while the other implies a return to national sovereignty; navigating the former will require great effort, whereas the latter is a relatively straight downward path. Ultimately, the EU’s future – if it has any future at all – depends on constructing a coherent narrative that articulates that choice explicitly..."Indeed in an increasingly interconnected and interdependent world only a fully integrated Europe has a chance to survive, moreover such an entity can provide the blueprint for the whole global world to follow.There is simply no other option, if Europe and the global world chooses the disintegration, isolation path, embracing inherent differences and fragmentation instead of building bridges, connections above them, a very painful and suffering future road opens.

Stop talking down on the EU, stop talking down on the Eurozone. All we need to do is to fix financial regulation including public finance. And we have to ignore the Southern drama and blame games, and move from a neoliberal industrialist Europe towards an ordoliberal Europe. 2012 was a win for the ordoliberal revolution of the EU, 2013 will be even better. The grand EU reform games are not relevant at this stage.

Alberto Bagnai, ET AL
want the Greek government to abandon the euro – and all other eurozone members to follow suit.

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